Project financing

By Shantveerayya.G.Math Roll. no 59

Project financing is an innovative and timely financing technique that has been used on many high-profile corporate projects, Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds

Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project.

Risk minimisation process

 

STEP 1 - Risk identification and analysis STEP 2 - Risk allocation STEP 3 - Risk management

Sources of Fund
Internal

Equity capital Preference capital Internal Accruals

Sources of fund

Term loans

Debentures External Miscellaneous sources

EQUITY CAPITAL
Equity capital represents ownership capital as equity shareholders collectively own the company. They enjoy the rewards and bear the risks of ownership.

PREFERENCE CAPITAL

Preference capital represents a hybrid form of financing-it partakes some characteristics of equity and some attributes of debentures. Ex: fixed rate of dividend , no voting right

INTERNAL ACCRUALS

The internal accruals of a firm consist of depreciation charges and retained earnings.
Depreciation represents the allocation of capital expenditure to various periods over which the capital expenditure is expected to benefit the firm. Retained earnings are that portion of equity earnings which are ploughed back in the firm.

TERM LOANS

Term loan mean the loan given for employed to finance acquisition of fixed assets and working capital.

DEBENTURES

Debentures are a viable alternative to term loans. Akin to promissory notes, debentures are instruments for raising debt finance. Debenture holders are the creditors of a company.

MISCELLANEOUS SOURCES
  

Lease and hire purchase finance. Unsecured loans and deposits. Commercial paper.

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